General Technology Applications, Inc. v. Exro Ltda

Decision Date28 October 2004
Docket NumberNo. 03-1860.,03-1860.
Citation388 F.3d 114
PartiesGENERAL TECHNOLOGY APPLICATIONS, INCORPORATED, a dissolved Virginia corporation, Plaintiff-Appellee, v. EXRO LTDA, Defendant-CounterclaimantAppellant, v. General Technology Applications, Incorporated, a dissolved Virginia corporation; Jerry C. Trippe; James G. Couch; Denis M. Neill; Thomas T. Scambos; William Weitzen; Paul F. Waters; Albert F. Haderman, Counterclaim DefendantsAppellees. Exro Ltda, derivatively on behalf of EXG LLC; Plaintiff-Appellant, v. Denis M. Neill; Thomas T. Scambos; William Weitzen; Paul F. Waters; Albert F. Haderman; John W. O'connell; Steven Perles; Richard B. Weitzen; Terry A. Craig; Estate Of William Weitzen; Estate Of David A. Wright; General Technology, Llc; GTA LLC; John And Jane Does 1-200, Defendants-Appellees, EXG LLC, Defendant.
CourtU.S. Court of Appeals — Fourth Circuit

Appeal from the United States District Court for the Eastern District of Virginia, Claude M. Hilton, Chief Judge.


Thomas Joseph Hall, Chadbourne & Parke, L.L.P., New York, New York, for Appellant. John Patrick Rowley, III, Holland & Knight, L.L.P., McLean, Virginia; Robert Powel Trout, Trout & Richards, P.L.L.C., Washington, D.C., for Appellees.


Gregory J. Kerr, Jennifer L. Frattini, Chadbourne & Parke, L.L.P., New York, New York; Paul B. Terpak, David J. Gogal, Blankingship & Keith, Fairfax, Virginia, for Appellant.

Richard O. Duvall, Jennifer A. Short, Robert T. Hicks, Holland & Knight, L.L.P., McLean, Virginia; John Thorpe Richards, Jr., Trout & Richards, P.L.L.C., Washington, DC, for Appellees.

Before WILKINS, Chief Judge, MOTZ, Circuit Judge, and C. Arlen BEAM, Senior Circuit Judge of the United States Court of

Vacated and remanded with instructions by published opinion. Senior Judge BEAM wrote the opinion, in which Chief Judge WILKINS and Judge MOTZ joined.


BEAM, Senior Circuit Judge:

Two cases give rise to this appeal. Both originated in state court and were removed to federal court under 28 U.S.C. § 1441. They were later consolidated. To summarize, and possibly oversimplify, Exro, Ltda. (Exro) asserted various claims against a variety of individuals and GTA, Inc. (GTA). The basic claim was that GTA and the individuals violated Exro's right to litigation proceeds that GTA recovered in a patent-infringement suit. GTA and the other parties adverse to Exro prevailed below through dismissal and summary judgment motions. We conclude the district court lacked jurisdiction, vacate the district court's judgments, and remand the case with instructions to remand the case to state court.


GTA is a Virginia corporation with its principal place of business in Virginia.1 Exro is a foreign corporation organized under the laws of Columbia, South America, where it conducts its business. GTA and Exro decided to pursue a business venture to produce and market a drag reduction additive (DRA). The DRA is a product GTA developed that, as the name suggests, reduces the drag caused by petroleum products moving in pipelines. GTA held patents on the technology used to make this product. GTA and Exro created a Virginia limited liability company called EXG, L.L.C. (EXG), through which they would pursue the DRA business. EXG had two members at its inception, Exro and GTA, as well as four managers charged with operating the company. Two of these managers were Exro directors, and the other two were GTA directors.

In the EXG Operating Agreement, Exro, GTA, and EXG promised to do certain things. Exro promised to arrange funding through outside investors, while GTA promised to license the intellectual property associated with the DRA. EXG promised to pay a licensing fee and royalties for the use of that technology. The Operating Agreement says that these initial capital contributions were to be contributed as of the "effective time" of the agreement. Exro claims GTA contributed a patent license to EXG as of the effective time of the agreement, while GTA argues its contribution was a promise to give a patent license that was never triggered because EXG did not pay the licensing fee and Exro did not arrange for funding.

EXG never successfully produced or marketed the DRA. As it turns out, a competitor in the field, Conoco, Inc. (Conoco) was infringing on the patented technology and had thereby produced a superior product. The litigation on appeal centers on that infringement. GTA successfully sued Conoco. The total amount awarded for the infringement was approximately $60 million. EXG was not a party to the infringement action. Exro, once it learned of the award, demanded that GTA pay it half of the proceeds of the Conoco litigation. According to Exro, EXG had an exclusive license to the GTA patents, making the infringement award EXG's. Exro, as a member of EXG, claimed entitlement to its membership share of the funds. GTA refused, dispersed the funds to its shareholders, and this litigation ensued.

As indicated, two different suits have brought about this appeal. The first initially involved arbitration. After Exro demanded arbitration of the dispute, GTA filed a claim in a Virginia state court against Exro seeking a declaration that the dispute was not arbitrable. Exro removed the case to federal court under 28 U.S.C. § 1441 and apparently waived arbitration. Exro then asserted counterclaims against GTA, the two GTA-affiliated EXG managers, and several GTA shareholders. As to GTA, Exro's counterclaims centered on EXG's rights under the patent license that GTA allegedly gave EXG. The counterclaims made against the individuals were also premised on that license. GTA amended its complaint to assert a claim against Exro for breaching the EXG Operating Agreement and sought a declaration that GTA owed none of the Conoco recovery to Exro. The district court dismissed the counterclaims Exro made against the individuals (the two EXG managers and the GTA shareholders) upon those parties' motion to dismiss. And it dismissed one of the counter-claims made against GTA upon GTA's motion for summary judgment.

A second state court suit followed. Exro styled this suit as a derivative action, filed on EXG's behalf, against EXG and the individuals dismissed from the previous action. In the derivative action, Exro asserted the same claims it had made against those individuals in the GTA v. Exro litigation. Exro also named 200 John and Jane Doe defendants who were GTA shareholders, asserting various claims against them. The defendants removed the case to federal court. Exro moved to remand the case, arguing there was no diversity jurisdiction. The district court did not rule on this motion and consolidated the case with the already pending GTA v. Exro litigation.

Once consolidated, GTA moved for summary judgment on Exro's counterclaims and for judgment on the pleadings on the claims it made against Exro. The individual defendants also moved to dismiss the claims made against them. The district court granted these motions on the merits.


We must first address jurisdiction. Standing is a jurisdictional issue we must consider independently. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990).

Standing does not refer simply to a party's capacity to appear in court. Rather, standing is gauged by the specific common-law, statutory or constitutional claims that a party presents. "Typically, ... the standing inquiry requires careful judicial examination of a complaint's allegations to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted."

Int'l Primate Prot. League v. Adm'rs of Tulane Educ. Fund, 500 U.S. 72, 77, 111 S.Ct. 1700, 114 L.Ed.2d 134 (1991) (alterations in original) (quoting Allen v. Wright, 468 U.S. 737, 752, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). Our jurisdictional inquiry includes both consti-tutional and prudential aspects of standing. Elk Grove Unified Sch. Dist. v. Newdow, ___ U.S. ___, 124 S.Ct. 2301, 2308-09, 159 L.Ed.2d 98 (2004). Prudential concerns include the notion that a plaintiff "generally must assert his own legal rights and interests." Hodel v. Irving, 481 U.S. 704, 711, 107 S.Ct. 2076, 95 L.Ed.2d 668 (1987). In a diversity case, we must consult state law to determine the nature of the litigant's rights and whether he is entitled to assert the claims he makes. See Gallagher v. Cont'l Ins. Co., 502 F.2d 827, 832-33 (10th Cir.1974); cf. Newdow, 124 S.Ct. at 2311 (looking to state law). A litigant bringing a diversity action (or seeking removal on that basis) can have no greater ability to assert legal rights created under state law than it would have in the state forum. "We are obligated to construe removal jurisdiction strictly because of the `significant federalism concerns' implicated. Therefore, `[i]f federal jurisdiction is doubtful, a remand [to state court] is necessary.'" Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 816 (4th Cir.2004) (en banc) (alterations in original) (quoting Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir.1994)). "Likewise, it is equally well-settled that the parties' characterization of themselves or their claims is not determinative for federal jurisdiction purposes." Roche v. Lincoln Prop. Co., 373 F.3d 610, 615-16 (4th Cir.2004).


With regard to the initial suit, GTA v. Exro, Exro's counterclaims are made individually and not derivatively—i.e., Exro seeks recovery on its own behalf. In those counterclaims, Exro claimed that GTA licensed its patent rights to EXG; that this license was "exclusive" and it therefore carried an obligation to turn the proceeds over to the licensee; and, thus, GTA must share the proceeds it recovered from Conoco with EXG (and therefore Exro as a member of EXG).

All of Exro's counterclaims are based on the patent license it says EXG had—a license that, if it existed, gave certain rights to EXG.2 Exro itself has no rights in the patent. A...

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